Donald Trump Claims He'll Become "Mr. Veto" After Midterm Elections, but the Results Put the President and Wall Street in a Precarious Situation

One of the most pivotal days of the year for America and Wall Street has come and gone. Election Day, Nov. 3, yielded a "blue wave," with Democrats retaking both the House of Representatives and the Senate by a wide margin. Several prediction markets had forecast a strong likelihood of a Democratic sweep in advance of Nov. 3.

Wall Street's initial reaction to midterm elections was positive, with the timeless Dow Jones Industrial Average (DJINDICES:^DJI), benchmark S&P 500 (SNPINDEX:^GSPC), and innovation-driven Nasdaq Composite (NASDAQINDEX:^IXIC) advancing 3%, 1.4%, and 1.6%, respectively, on Nov. 4. But these gains may prove fleeting.

As Election Night unfolded, President Donald Trump took to social media and Fox News to lay out his game plan for the final two years of his term. This included digging in his heels and proclaiming, "I guess I'll become Mr. Veto," with regard to his future dealings with a Democrat-led Congress.

President Trump's efforts to minimize AI regulation will face a tough test. Image source: Official White House Photo by Daniel Torok.

While the prospect of political gridlock has investors somewhat on edge, it's another subset of Election Night results that's put President Trump and Wall Street's rip-roaring bull market in a precarious situation.

President Trump vows to use his veto power to maintain the status quo

Political gridlock isn't an end-all for the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite. In fact, some aspects of political gridlock can be beneficial for the stock market.

For example, a Democrat-led Congress, coupled with a Republican in the White House, dramatically lowers the odds of significant tax and spending legislation being signed into law between January 2027 and January 2029. This suggests that the peak marginal corporate income tax rate of 21% will remain at its lowest level since 1939 through at least the end of Trump's final term. A historically low corporate income tax rate and some degree of continuity are both good news for Wall Street.

But other aspects of this political gridlock can create pain points for the stock market.

"I guess I'll become Mr. Veto." President Trump lays out his strategy for dealing with a potential Democratic-controlled Congress in an exclusive interview with Miranda Devine. Trump says he would veto legislation before eventually negotiating compromises, while expressing hope Republicans maintain control after Tuesday's midterms.

— Fox News (@FoxNews) November 1, 2026

For instance, the ideological differences between Democrats and Republicans will likely make debt-ceiling negotiations far more challenging. The debt ceiling (i.e., the upper limit on what the federal government can borrow to meet its obligations) is forecast to be reached in the first half of 2027. A split government greatly increases the odds of a federal government shutdown next year, which could adversely affect the U.S. economy and corporate earnings.

Furthermore, a Democrat-led Congress is more likely to spar with President Trump over artificial intelligence (AI) regulation. Whereas the president has favored as little AI regulation as possible to encourage innovation, spur economic growth, and send the Dow, S&P 500, and Nasdaq Composite to new heights, most Democratic lawmakers want to beef up the testing and vetting of AI solutions, including large language models, and limit data center expansion.

This is an area where President Trump believes his veto power can be especially powerful. Unless the House and Senate both reach a two-thirds vote, Trump would be able to override AI legislation with a presidential veto.

At first glance, it would appear that growth for the stock market's No. 1 catalyst will continue unabated for the foreseeable future, thanks in part to Trump becoming "Mr. Veto." But a surprising Election Night result may end up negating the president's veto power.

Image source: Getty Images.

A gubernatorial blue wave opens the door to significant AI reforms at the state level

While the bulk of Election Night coverage focused on Democrats retaking the House and Senate, the real surprise was that five governorships flipped from Republican to Democratic control. According to the Associated Press, as of 11 p.m. ET on Nov. 4, Democrats now hold 28 governorships, with two races left uncalled. It marks the first time since 2010 that Democrats have a majority of governorships.

It's not this majority that puts the president and Wall Street in a precarious situation. Rather, it's the states Democrats flipped that present a serious challenge to the stock market's No. 1 catalyst and President Trump's veto power.

As of this writing, the five governorships that flipped are in Texas, Ohio, Georgia, Nevada, and Iowa. Texas, Ohio, and Georgia rank among the top states for AI data center planning and construction.

Greg Abbott is still approving data centers in Texas despite his election year “pause.” That’s Abbott’s playbook: he sells us out and then lies about it. https://t.co/ozFasjNs3W

— Gina Hinojosa (@GinaHinojosaTX) October 22, 2026

Democratic Governor-Elect Gina Hinojosa of Texas has proposed a ban on data center approvals until her state's legislature passes laws governing electricity, water, air, and property rights. Most Democratic lawmakers believe in limiting the pace of data center expansion and beefing up the oversight of AI innovations and large language models.

Although President Trump retains the ability to veto AI legislation passed by Congress, Democratic governors can slow the pace of the AI infrastructure build-out at the state level, effectively steering clear of the president's veto.

This subtle shift in gubernatorial control can have massive implications for Wall Street. For instance, the stock market entered 2026 at its second-highest valuation since January 1871. History has conclusively shown that premiums of this magnitude aren't well-tolerated on Wall Street and often lead to significant bear markets. In short, Wall Street is ill-equipped to deal with a slowdown in the AI data center build-out.

Credit markets are flashing WARNING SIGNS across the AI trade: Oracle, $ORCL, 5-year credit default swap (CDS) spread has surged to ~263 basis points, while SpaceX's has risen to ~203 basis points, both at record highs. At the same time, CoreWeave's $CRWV, 5-year CDS is up to a record 982 basis points. This comes as tech companies have issued nearly $500 billion in new debt this year to finance AI infrastructure, with 9 US investment-grade bond deals worth at least $25 billion each. The growing debt burden is colliding with uncertainty over whether AI revenues will justify the enormous spending. As a result, investors are increasingly demanding higher compensation to take on credit risk. Oracle's market-implied 5-year default risk has risen above 20%, compared with around 16% for SpaceX and more than 7% for Nvidia. The pressure could intensify further, with Goldman Sachs projecting hyperscaler debt issuance to jump from $250 billion in 2026 to a massive $420 billion in 2027, as 35% of next year's capital spending is expected to be debt-funded. The AI boom is now testing credit markets, as investors begin repricing the risks behind Big Tech's unprecedented borrowing spree.

— Global Markets Investor (@GlobalMktObserv) October 14, 2026

We're also seeing evidence from the bond market that this shift may be problematic for some hyperscalers, neoclouds, and select AI hardware companies. Whereas corporate bonds should, ideally, trade near par value, CoreWeave's (NASDAQ:CRWV) 2031 notes, Oracle's (NYSE:ORCL) 2065 notes, and Nvidia's (NASDAQ:NVDA) 2060 notes are trading at $0.79, $0.73, and $0.63 on the dollar, respectively.

These sizable discounts to par value show that bond traders want considerably higher yields (bond prices and yields are inversely related) to offset the risk of holding debt tied to the AI data center build-out.

Even if President Trump becomes Mr. Veto, the gubernatorial blue wave can fundamentally alter the AI regulatory landscape.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Oracle. The Motley Fool has a disclosure policy.